Here's How Aetna and Humana Will Try to Save Their Mega-Merger

Health insurer Aetna, whose $33 billion purchase of Humana has been spurned by the U.S. government, faces a tough but not impossible legal battle to try to reinstate the deal.

Aetna vowed to fight “to the very end” after the Department of Justice filed suit earlier on Thursday to block the merger, which had been in the works for more than a year. Antitrust reviewers say the combination will hurt consumers and the companies’ proposed fix—selling some health plans to a competitor—is insufficient.

The Justice Department simultaneously sued to block Anthem’s proposed $45 billion deal for Cigna(ci), moving against an unprecedented effort to consolidate the U.S. health insurance market.

Of the two deals, analysts and investors see Aetna (aet) and Humana (hum) as having a slight chance to reverse the decision through a court battle. They face a Justice Department empowered by a series of high-profile successes against mega-mergers, scuttling deals in industries from oil services to retail stores and telecommunications.

“My initial impression from the complaint … is that the Justice Department and the states are on much safer ground” in their argument against an Aetna-Humana tie-up, said Beau Buffier, co-head of the antitrust group at Shearman & Sterling in New York.

The Justice Department lawsuit focused on a county-by-county analysis of where Aetna and Humana have what is deemed too much market share in providing Medicare Advantage for elderly people and in the individual health plans created under President Barack Obama’s healthcare reform law.

Aetna will argue in court that the Justice Department defined the market for Medicare Advantage too narrowly, which has caused it to see competition issues where they do not exist, Chief Executive Officer Mark Bertolini said in an interview. The government has failed to take into account that seniors can not only choose between Medicare Advantage plans sold by private players, but also have the government-run Medicare program as an option.

“Let a judge decide. Is Medicare Advantage competitive with Medicare fee-for-service? If that is indeed the case, then there isn’t any market we need to divest,” Bertolini said. “If we have to divest, can we provide an appropriate remedy? And we have.”

The Justice Department has already rejected that argument. However, Aetna will use evidence that the Obama administration envisioned Medicare and Medicare Advantage as direct competitors as it sought support for the Affordable Care Act passed in 2010.

Aetna and Humana also have an answer to the concerns over the Obamacare market, since Humana has already announced plans to cut back dramatically on its presence in that business.

“We think over time, that becomes less of an issue,” Humana CEO Bruce Broussard said in an interview. Humana will in 2017 offer Obamacare plans in only about 160 U.S. counties, compared with 1,351 counties this year. The Justice Department has signaled antitrust concerns in 19 counties.

Aetna may also gain some leverage if the Anthem-Cigna deal breaks up first, according to some antitrust experts. In that scenario, Anthem(antm) could become a buyer of some Medicare Advantage business they need to divest.

“If Cigna-Anthem craters, I wouldn’t be surprised to see the Justice Department agreeing to some kind of divestiture package,” said Matthew Cantor, an antitrust lawyer at Constantine Cannon.

Bertolini said Aetna has presented a package of assets to sell that nearly matches up with the 364 counties in 21 states where the Justice Department cites a lack of competition. Aetna has two buyers for those health plans that have experience in Medicare Advantage, he said. A source familiar with the situation said the two companies that have offered to buy all the assets are WellCare Health Plans and Molina HealthCare.

The Justice Department has argued that the proposed buyers are not strong enough players on their own.

“Overall, this will be all about litigating the fix,” said Andrea Murino, co-chair of Goodwin’s antitrust group based in Washington D.C. “What DOJ wants when they come up with a remedy is an immediate and expansive competitive response – to substitute one company in for another without missing a beat.”

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